LSE profit down 40% as competition hits equity trading

SimonKennedy

LONDON (MarketWatch) -- The London Stock Exchange on Wednesday reported a 40% drop in fiscal first-half net profit as rising competition from other trading platforms hit its equities business.

The exchange operator earned 49.3 million pounds ($81.7 million) compared with 81.7 million pounds a year earlier. Revenue shrank 9.2% to 310.9 million pounds.

Trading volumes declined, with the average daily value of U.K. equities trades dropping 16% from the second half of the previous fiscal year, the LSE (LSE) said.

This was partly offset by rising derivatives trading volumes and a very active primary market as companies raised 43.5 billion pounds from share sales to strengthen their balance sheets.

"The overall group performance reflected market conditions depressed by the fallout from turmoil in financial markets last year and increased competition, particularly in U.K. cash equities trading," Chief Executive Xavier Rolet said.

That competition has come from alternative trading platforms such as Chi-X and BATS Europe, which have been steadily grabbing market share in the trading of U.K. stocks.

The LSE has responded by acquiring Millennium Information Technologies, a deal that will give it a faster trading system. But the deal also weighed on its profit in the current period.

The exchange is also in talks to acquire Turquoise, a trading platform that was set up by a consortium of investment banks.

Numis Securities analyst Gurjit Kambo said in a note to clients that the exchange's revenue was slightly below his expectations, while the adjusted pretax profit was broadly in line.

He also noted that the outlook was relatively cautious for near-term trading volumes, with the LSE indicating that cash equity volumes in November have been weaker than in October.

Kambo said the statement provided some "ammunition for the bears" but suggested any share-price weakness should be seen as a buying opportunity and reiterated his target price of 1,050 pence.

Shares in the LSE slipped 1.4% to 835 pence in London, while the broader market stepped higher.

Outside of its equity-trading arm, the LSE said demand for its data also declined, but that was partly offset by growth in other information and technology products. In post-trades services, revenue was up around 16%, helped by continued increases in clearing and settlement volumes.

The exchange said it will pay an interim dividend of 8.4 pence a share -- unchanged from a year earlier.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.